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Something surprising happened during an experiment to empower workers at Thenmallay, a tea plantation nestled on a misty plateau between the heavy monsoons of eastern Kerala and the drier uplands of Tamil Nadu in south India.

When Tata Tea, the then owner, withdrew its managers from the plantation in April 2004 and told the 600-odd pluckers to manage the estate themselves, productivity plummeted. After three months, the pilot project was pronounced a disaster. “The drive and efficiency that had made Thenmallay our most productive tea garden suddenly vanished,” says Chacko Thomas, a former field manager at Thenmallay, part of Tata Tea’s largest estate in south India.

The initiative was one of several options considered by Tata Tea after it decided to quit the volatile business of growing tea and concentrate instead on selling higher margin branded beverages. A sale to a third party had been rejected, Tata Tea says, because it could not win assurances on job security and the environment. Though the experiment was disappointing, it did, however, prompt another course of action.

The pluckers, their suspicions perhaps roused by the loss of jobs on 22 neighbouring plantations forced to close in the past three years because of falling tea prices, hinted that if Tata wanted to quit tea cultivation, it might consider an employee buyout.

Twelve months later, in April 2005, Thenmallay and 16 other plantations were bought for Rs680m ($15m) by a new company whose shareholders comprised 13,000 pluckers, gardeners, drivers, clerical staff and former Tata managers. “This way we can work together,” says Rani, a mother and now a shareholder, who has been pruning and plucking at Tata fields in Munnar, Kerala, for 13 years.

Kanan Devan Hills Plantations, the name of the new company, is a rare example of an employee buy-out in India. Even more unusually, it is an instance of a responsible company – Tata Tea’s parent company is 66 per cent owned by charitable trusts – selling a loss-making unit while also bequeathing a sustainable business structure for its worker-owners, many of whom are fourth-generation plantation workers.

“Though we were making a strategic exit from tea-growing, our aim was to leave behind a sustainable model. After all, these workers belong to the hills,” says R.D. Krishna Kumar, vice-chairman of Tata Teas, India’s second biggest branded tea company.

The results are becoming apparent. Four years of annual losses of about Rs100m were stemmed as the company revealed a profit of Rs20m for the nine months to December. Productivity has improved 34 per cent since April. KDHP, which grows a third of Kerala’s annual tea output of 60m kg, has also revealed the first non-tea initiative in the estate’s 125-year history. Free to innovate, KDHP will grow plants for export to European perfumers.

“These changes reflect the empowering sense of ownership,” says T.V. Alexander, a veteran plantation man and Tata Tea executive who put together the buy-out strategy and later became KDHP’s first managing director.

Mr Alexander, who invested Rs20m from his personal pension in KDHP equity, says taking on an entrepreneurial challenge “way past my 53rd birthday” may seem foolhardy. “But I’m sure the plantation model, which this industry believes is as evolved as it can get, can still be dramatically improved.” Pointing to a wall of colonial-era memorabilia in the plantation’s clubhouse, Mr Alexander says the appetite for radical change “will allow us to do now what we couldn’t do before – and survive”.

Central to KDHP’S strategy is a model that dumps tradition and boasts a “participatory management” culture that would horrify the plantation’s 19th-century forefathers. In any event, the aggregate is the “sustainability” that Tata desired and KDHP needs to survive in the 21st century.

Mr Alexander says his business strategy rests on four factors.

First, KDHP’s chances of success were greatly boosted by a Rs340m programme of voluntary retirement paid for by Tata and carried out before the new company came into being. Tata Tea did not disclose the buy-out plans to potential retirees, arguing that it would have encouraged people to stay for the wrong reason - to acquire shares.

Second, a smaller workforce may have improved productivity but what KDHP also needs is improved long-term yields. This means replanting tea-growing areas, four-fifths of which are decades past their economic life of 40 years. KDHP can now begin replanting, using, for example, grafting technologies to boost yields. Some 100 hectares will be replanted each year at a cost of Rs105m.

A third factor, also linked to better use of the 57,000 acre estate, of which only 22,000 acres is devoted to tea, is cultivating new products. Kerala’s strict laws on land use had denied tea growers the opportunity to exploit the estate’s varied topography by, say, growing fruits and cutting eucalyptus for firewood, saving oil costs. Tata’s management lobbied for change, arguing it would help a pioneer venture such as KDHP. The reforms paved the way for KDHP’s aromatics contract and plans to use its handsome colonial bungalows and rich game reserve for tourism. By 2010, south India’s largest tea plantation will earn less than 50 per cent of its revenues from tea.

This expansion into markets and replanting will require capital, which will be easier to access because of a fourth factor. Under the sale terms, KDHP does not bear the ruinous recurring overheads and liabilities of being a Tata sibling. The estate schools, hospital and other extensive welfare arrangements will continue to operate but the bill will go to Tata, removing the biggest cost burden on the traditional plantation model.

These positives will be augmented, Mr Alexander believes, by bringing the new workers-shareholders into management. The participatory management will go beyond board seats for workers and extend down to the lowest operating rung of the company’s 82 units. The “division advisory committee”, the base level of worker participation in decision-making, meets every two weeks to discuss, in nuanced detail, how to improve output. “Field workers have an expertise that has been ignored over decades of top-down management,” says Mr Alexander. “Now they are empowered. What we are doing is truly different.”

To ensure this exercise does not end up as tokenism, KDHP organised classes for workers, encouraging, in particular, women, who make up most of the pluckers, on how to get the most out of company meetings. Polls to elect workers to the division committees were validated by external observers. “We feared these forums would become places for domestic grievances and we would end up with another Thenmallay. Instead, we got smart talk on green-leaf harvesting,” says J. Hudson, who heads field operations.

The upshot is greater job security for a workforce that seems to believe it can contribute to, and benefit from, wealth creation at KDHP. Some 92 per cent of the workforce joined the share scheme, far exceeding expectations at Tata, which has retained a 26 per cent holding in KDHP and will remain a large customer of the company. Indeed, the buy-out appears to have gone so well that Tata is applying the template to its plantations in north India.

N. Gopalkrishnan, who has held clerical roles for each of the Munnar estate’s three owners – KDHP, Tata Tea and James Finlay, the British company that first dug the fields – bought six times the minimum subscription and is convinced his investment “will grow fivefold in the few years before I retire”.

Mr Alexander knows that such people “count on me”. He says his decision to accept the challenge has already been partly repaid. In June, tea unions in the communist-governed state of Kerala called a strike – traditionally wholly observed and a trigger for “uneconomic” increases in wages, according to Mr Alexander. A disruption would have been a blow to the new-born KDHP. Every plantation in Kerala, the source of 7 per cent of India’s annual output of 850m kg of loose tea, stopped for 11 days – except KDHP.

“If our workers had gone on strike, we’d have been hurt more than economically,” he says. “Our fundamental faith in the venture would have been shattered.”

NEW APPROACHES AT AN OLD PLANTATION

■Diversification. As well as tea, Kanan Devan Hills Plantation’s 91 sq miles can grow plums, apples and pears in high elevation areas and provide pulp for paper mills in low-lying areas. Managers are also looking to expand into tourism, on an estate that boasts picture postcard beauty, dozens of colonial bungalows and the world’s largest population of ibex.

■Worker involvement. As shareholders, workers should and will be heard, says T.V.­ Alexander, KDHP managing director. Two employees – one from the field and another from the clerical staff – will sit on the KDHP board.

■Recruitment. Twenty years ago plantation life was a sinecure; now KDHP is no longer recruiting plantation managers: “We want business development managers,” says Mr Alexander. Although it has taken on some top names within the industry, the recruitment of business executives is proving tough.

■Growth. Struggling rival estates have complained that they are under pressure to follow KDHP or even sell out to the new company. “We would be interested in acquisition but not now,” says Mr Alexander. “Yes, we have ambitions – my aim is to own plantations in other countries.”

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